Why it matters: Trust and stability are perhaps the biggest hindrances to digital asset adoption. Stablecoins look to address these concerns through regulation and fiat currency backing.
The New York Department of Financial Services (NYDFS) on Monday approved stablecoins offered by Paxos Trust Company and Gemini Trust Company.
A stablecoin is a cryptocurrency that is pegged to a stable asset, like gold or fiat currencies. In the case of the Gemini dollar and the Paxos Standard, they’re linked to the US dollar on a one-to-one basis. Both are built on the Ethereum network’s ERC-20 technical standard.
Essentially, they extend the desirable technological qualities of cryptocurrencies to fiat currency while avoiding the price volatility associated with traditional cryptocurrencies like Bitcoin. In other words, they can always be traded out for US dollars at a value of 1:1. At that rate, they don’t really have any potential for investment opportunities but they’re useful for payments.
The Winklevoss twins, co-founders of Gemini, said the US dollars that correspond to Gemini dollars issued and in circulation will be held at a bank in the US and are eligible for FDIC “pass-through” deposit insurance. What’s more, US dollar deposit balances will be examined by an independent public accounting firm on a monthly basis to verify their 1:1 peg.
Paxos’ stablecoins are also backed by dollars held at US, FDIC-insured banks, the company notes. Paxos said that today, they have tokenized the dollar.
Both coins are available from today from their respective exchanges.